The defunct crypto-focused Silvergate Bank and its parent company, Silvergate Capital Corp, have found themselves embroiled in a series of regulatory actions following allegations of compliance lapses and securities fraud.

On Monday, the US Securities and Exchange Commission (SEC) filed a lawsuit against Silvergate Capital Corp in federal court, accusing the company of securities fraud. The SEC alleges that Silvergate engaged in a "fraudulent scheme" to mislead investors about its bank secrecy and anti-money laundering compliance programmes, as well as its "dire financial condition" in the aftermath of crypto exchange FTX's collapse in November 2022.

The regulatory body further claimed that the bank failed to detect nearly $9 billion in suspicious transfers by FTX and its related entities.

In a separate but related development, Silvergate Capital has agreed to pay $63 million to settle probes into compliance lapses. This marks the first federal enforcement action brought against entities and individuals in connection with the wave of bank failures in 2023.

The Federal Reserve and California regulator identified deficiencies in Silvergate's monitoring of transactions in compliance with anti-money laundering laws. Concurrently, the SEC accused the bank and three of its top executives of making misleading statements to investors.

Former chief executive Alan Lane and former chief risk officer Kathleen Fraher have agreed to settle SEC charges without admitting or denying the allegations. They face permanent injunctions, five-year officer-and-director bars, and civil penalties of $1 million and $250,000 respectively.

Former Chief Financial Officer Antonio Martino has been charged with misleading investors about the company's losses from expected securities sales following FTX's collapse. Martino is contesting the charges.

Silvergate, which primarily served clients in the cryptocurrency industry, announced in March 2023 that it would wind down operations and voluntarily liquidate after suffering significant losses in the wake of FTX's collapse and a broader downturn in digital assets.

The La Jolla, California-based bank was one of four US banks that failed in 2023. Similar to the collapsed Silicon Valley Bank, Silvergate sold debt securities at a loss as depositors withdrew more than $8 billion.

A spokesperson for Silvergate Capital stated that all deposits had been repaid to customers and that the settlements announced would facilitate the surrender of Silvergate's bank charter.

The total settlement amount of $63 million is divided among regulatory bodies, with $20 million to be paid to the California Department of Financial Protection and Innovation (DFPI), $43 million to the Federal Reserve, and $50 million assessed by the SEC, which will be offset by Silvergate's payments to the Fed and DFPI.

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